Section 194H requires TDS on commission or brokerage at 2% (reduced from 5% with effect from 1 October 2024), once the aggregate in a year exceeds the threshold (Rs.20,000 following the Finance Act 2025). It does not apply to commission on insurance or to brokerage on securities.
Rate and threshold
The rate is 2% (the earlier 5% was reduced from 1 October 2024). TDS applies once aggregate commission/brokerage to a payee in the year exceeds the threshold (Rs.20,000 following the Finance Act 2025 rationalisation; Rs.15,000 earlier). Verify the current rate and threshold — the Rs.20,000 threshold applies per the Finance Act 2025.
What is commission or brokerage
It covers any payment received for services rendered (not being professional services) in the course of buying or selling goods, or in relation to a transaction relating to any asset, valuable article or thing, including services in the course of buying/selling. Insurance commission (Section 194D) and brokerage on securities are outside 194H.
The discount dispute
A recurring issue is whether trade discounts or margins retained by distributors are 'commission' attracting 194H. Where the relationship is principal-to-principal (sale at a discount), TDS generally does not apply; where it is principal-agent (the dealer acts for the principal), it may. Telecom and similar cases have been heavily litigated. Verify the position for your arrangement before concluding.
Practical points
- Examine the substance of the relationship, not just the label.
- Non-deduction attracts 30% disallowance under Section 40(a)(ia).
- Report in Form 26Q; deduct at credit or payment, whichever is earlier.
- Insurance commission is covered separately by Section 194D.
Key takeaways
- 194H: 2% on commission/brokerage (cut from 5% in Oct 2024).
- Threshold Rs.20,000 (post-Finance Act 2025).
- Principal-to-principal discounts generally fall outside 194H.
- Insurance commission is under 194D, not 194H.